Niels Peder Nielsen: How Banks Can Adapt Their Operating Models as Strategies Shift

As new technologies and business models disrupt the financial services industry, many banks are rethinking their strategies. Yet most transformation efforts fail, and the operating models are often to blame. Niels Peder Nielsen, a partner in Bain's Financial Services practice, discusses five steps that banks can use to build operating models that flex as strategies shift.

NIELS PEDER NIELSEN: Banking operating models are undergoing massive change. And as a consequence, many banks see themselves having to respond strategically. The fact is also that 90% of those transformation programs fail. In many cases, the bank operating model is, in fact, the main culprit in that.

Many bankers are simply asking their operating models to do and perform things that they never had to do in the past. And that means a need for change. As bankers move into this change of the operating model, there are five things in particular we would encourage bankers to look into.

The first is how can they get the customer first in the whole redesign of the bank. It sounds obvious. But the fact is it has fundamental value to do that. In many cases, what it means is organizing around customer segments, and in many cases, also organizing around customer episodes.

The second point we would encourage bankers to look into is really how to set up their organization to work with outside partners. In many cases, banks have not been accustomed to working with outside partners in a good way. And bringing them into close partnerships means a very different set of trade-offs and a very different organizational setup.

The third area is around getting Agile fast. Virtually all banks we work with are doing Agile at some level. Fact is also very few banks have yet figured out how to scale it up such that it has a pervasive effect throughout the bank. And that takes a very different way of operating the Agile setup across different functions.

Fourth, of course, relates to legacy IT. Legacy IT is a major stumbling block. What we are encouraging bankers to do is to look into how they design the future technology function—you know, shaking all parts of the current IT function as we know it.

The fifth, and perhaps most critical, part relates to talent. Obviously, massive automation will reduce a need for labor in many parts of the banks. But as importantly, it's a completely different set of talents that's required to build new IT capabilities and new customer understanding and new ways of communicating with customers. So that becomes an absolutely critical transition.

So we would strongly encourage bankers to get ahead of the curve in terms of how they design the banks to better execute on their strategies.